Go Beyond Customer Segmentation and Explore Predictive Analytics Part 2

Direct Marketing Magazine shared some ideas about predictive analytics.

Predictive Analytics Road Map

To get the most out of customer segmentation analysis, organizations could create road maps incorporating the following steps:

1. Determine the Overall Business Objective. Get everyone on the same path and in agreement with what you want to accomplish, such as improving the yield on lead-generation efforts, identifying cross-sell opportunities or identifying customers most likely to go to a competitor.
2. Capture All Potential Customer Data. Segmentation begins with gathering customer data from a wide variety of resources, including data warehouses, point-of-sale systems and loyalty programs. A database of static customer information is valuable, but until key active knowledge is applied—like preferences or motivations—there’s an incomplete picture of the customer. Capturing feedback from any touchpoint—in any language—provides a clearer understanding of customers’ needs, preferences and attitudes, and improves the segmentation process.
3. Perform Recency, Frequency and Monetary (RFM) Analysis. To obtain the most accurate picture of customer lifetime value, organizations first should perform RFM analysis to classify customers according to: those who have spent the most—the most often and most recently; those who have spent the most—the most monetarily, but may not have purchased in a long time; those who spend the most in the fewest number of transactions; and those who spend the least, or rarely, and have not purchased in a long time.
4. Outline the Segmentation Process. Once customers have been identified based on purchasing patterns, then segmentation analysis can begin to get to the core of the audience you want to target. The key to a successful segmentation program is to first define the many ways the results can be used. An approach might take the following path:
   • Create customer segments to enable differential marketing programs.
   • Use past purchase data and demographics to construct customer subgroups.
   • Isolate key performance factors linked to long-term customer value as major data drivers for the segmentation.
   • Use cluster analysis to form homogenous groups of differently valued customers.
   • Use techniques such as rule induction to automatically extract the profile of each cluster.
   • Align the marketing spending priorities against each subgroup.
   • Link product line or category affinity to each subgroup.
   • Develop marketing plans incorporating value-based budgeting and category affinity to make programs more relevant and efficient.
5. Auto-Segmentation. With a customer base more clearly defined through effective segmentation, organizations then can add predictive modeling functionality within each segment to produce greater insight that’s required to more effectively and efficiently acquire, grow and retain the right customers, and also identify fraud and minimize risk. The modeling functionality in predictive analytics technology helps organizations accurately determine which customers best match specific offers or campaigns. By eliminating the guesswork when targeting customer groups, organizations quickly increase ROI through more efficient use of resources and reduced spending.
6. Deploy and Share Results Throughout the Business. The final step is to create an environment in which an organization can manage and automate its analytical processes and easily deploy the results across the enterprise—thus improving productivity and collaboration and increasing ROI. This includes the ability to automate the database scoring process, publish and distribute output and reports, and integrate the analytical process into other business applications. For example, when a customer calls a call center, that agent should be able to pull up information on that specific customer and know what type of offer should be made at that particular time.

Hit the Target

With predictive analytics technology, organizations can move toward a one-to-one conversation with customers. Insight gained from even the most elementary analysis of customer characteristics can have profound implications on the business and result in marketing success.